In the last few years, the automobile sector has been facing many problems. It has been an underperformer for a long time.
Automobile Sector: The automobile sector is an important part of the domestic manufacturing economy. However, in the last few years, the sector has been facing many problems. These include revised axle load norms for CV space, mandatory third party insurance at the time of purchase of a new vehicle, change in emission norms from BS-IV to BS-VI, volume dispersion due to COVID-19, rise in energy prices. , semiconductor chip shortages and the recent rise in commodity inflation. However, experts and brokerage houses expect a recovery in the long-time underperformer in the coming days due to demand recovery and easing of existing negative factors. The brokerage house has advised to invest in some selected stocks.
Brokerage House ICICI Securities
Brokerage house ICICI Securities says that in the recent past, the prices of vehicles have increased in high double digits. This has resulted in a decline of more than 30 per cent in domestic sales compared to the peak of FY19. The brokerage says that till the end of last year, stability was once seen in the sector, but geopolitical tensions raised concerns. This further increased commodity prices, increasing the tension regarding the supply. Chip shortage is coming to the fore once again. In such a situation, there will be pressure on the sector in the near term. The brokerage house has cut the earnings estimates of the sector by 8-10 per cent. But M&M, Tata Motors and Ashok Leyland have predicted a boom in the coming days.
ICICI Securities Preferred Shares, Ratings and Targets
Maruti Suzuki: Hold, Rs 7750
Tata Motors: Buy, Rs 550
M&M: Buy, Rs 1045
Bajaj Auto: Hold, Rs 3370
Hero MotoCorp: Hold, Rs 2515
Ashok Leyland: Buy, Rs 140
Eicher Motors: Hold, Rs 2535
Escorts: Hold, Rs 2050
Brokerage House Motilal Oswal
Brokerage house Motilal Oswal says that geopolitical tension has once again increased the pressure on the auto sector. Commodity inflation, high crude prices, supply chain problems are negative factors for the sector. Commodity prices have increased by 48 percent from the average of 2HCY21. Aluminum (+48%), Palladium (+38%), Rhodium (+35%), Platinum (+13%), Rubber (+28%) and Copper (+15%) have become expensive.
The brokerage house has cut FY23E EPS for OEMs. This cut is estimated by Ashok Leyland (-19%), Tata Motors (-14%), TVSL/HMCL/MSIL (-12% of all). Coming to the auto component, the brokerage has forecast CEAT (-32%), MSS/APTY (-20% each), MRF (-15%), ENDU (-12%) and EXID/BHFC (-11%) in FY23E EPS estimate. for both) is deducted.
However, the brokerage expects a strong recovery in the sector from FY23E onwards. Growth in 2W, PV, LCV, M&HCV and Tractor segment can be 12%, 21%, 27%, 31%, -10% in FY23E.
Top Picks: Maruti Suzuki, Ashok Leyland, Bharat Forge, Apollo Tires
(Disclaimer: Stock investment advice is given by the brokerage house. These are not the personal views of The Financial Express. Markets are risky, so take expert opinion before investing.)
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